The Eurozone is not in the Rose data set

Currency unions are a hot topic, for obvious reasons. The Eurozone has gone spectacularly off the rails. There is some evidence that currency unions boost trade (see Andy Rose here and here and this post) but considering the rolling disaster that is southern Europe many would consider that a small gain.

Therefore, a recent paper from Andy Rose has attracted a lot of interest: he finds that currency regimes have no systematic effect on macroeconomic performance. That is quite a find! It implies that the southern European countries would have been in trouble anyway. I found it via Tyler Cowen, who led me to comments by Paul Krugman and Antonio Fatas.

Except there is one thing about the paper. Page 3: “I exclude from the sample the five systematically important economies of China, the Eurozone, Japan, the UK, and the USA.”

Neither Krugman, Cowen, nor Fatas mentioned that the Eurozone countries are not in the data set; perhaps it is too obvious? It is still a great paper. And Tyler Cowen provides a solid explanation of the results.

But I am not sure that it tells us anything about the effect of the euro.

Comments

[J.H.]

I know this is an old post, but having started a book by Kenen and Meade on regional monetary integration I came across a point in the book that brought me back to this post. It was noted, therein, that some earlier works by Rose in 2000, 2002 (with Glick) and 2004 which had shown that pairs of countries sharing a currency trade more heavily with each other than other country pairs had been criticized because those works did not include the euro (so 2013 must seem like deja vu to Rose). At the time the EMU was only just beginning and so was not covered in the period of his data set. But later work by Micco, Stein and Ordoñez (see here: http://faculty.haas.berkeley.edu/arose/MSOIADBEMU.pdf) addressed euro EMU countries specifically and seemed to find a similar effect as Rose had earlier for other currency union, but with lessened effect.

It makes me wonder if any other research (already concluded, ongoing or not yet started) would show that the euro would have had no systematic effect on macroeconomic performance of the European countries involved in the euro.....